China Stock Market Crash
Driven by sustained state media coverage and loose credit, the Shanghai Composite Index rose more than 150% from mid-2014 to June 2015, then fell more than 30% in three weeks. The government responded with a series of interventions, including prohibiting large shareholders from selling shares and deploying state funds to purchase equities directly.
The Bull Run and Its Causes
From mid-2014 to June 2015, the Shanghai Composite Index rose over 150%, driven by state media coverage, loose monetary policy, and an expansion of margin lending. Millions of ordinary Chinese investors opened new accounts, many borrowing heavily to invest. At the peak, over 90 million trading accounts were active. Analysts and some regulatory officials publicly noted elevated market valuations during the run-up.
The Crash and Government Response
Between June 12 and August 26, 2015, the Shanghai Composite lost over 43% of its value, with trillions of yuan in paper wealth erased. The government deployed a series of large-scale interventions: the China Securities Regulatory Commission suspended IPOs, banned large shareholders from selling for six months, deployed state funds to purchase shares directly, and investigated short sellers for "market manipulation."
Consequences
Foreign institutions and international observers offered varying assessments of the interventions' effects on market functioning, and some reduced their exposure to Chinese assets during this period. In August 2015, the People's Bank of China reformed the renminbi's exchange rate formation mechanism, with the currency depreciating nearly 2% in a single day. This triggered volatility in global financial markets and prompted central banks and institutional investors in multiple countries to reassess their China exposure.
Narrative Comparison
| Source | Narrative |
|---|---|
| Beijing Official Account | Abnormal market volatility emerged in 2015, and the government took necessary stabilisation measures in accordance with the law, effectively preventing the spread of systemic financial risk. Measures by the China Securities Regulatory Commission — including the suspension of IPOs and restrictions on share sales by major shareholders — were aimed at protecting the lawful rights and interests of small and medium investors. The reform of the renminbi exchange rate formation mechanism was a proactive step to improve market-based pricing and advance the internationalisation of the renminbi. |
| US Official Account | We have noted the series of interventions taken by Chinese authorities during the period of stock market turbulence, including restrictions on share sales and the deployment of state funds to purchase equities directly. These measures represent a significant departure from the principles of transparency and price discovery standard in market economies. We call on China to fulfil its commitments to advancing capital market openness and renminbi exchange rate liberalisation, and to maintain timely and adequate communication with the international community regarding relevant policy adjustments. |
| Western Academic Analysis | Researchers have characterised the 2015 crash as the collapse of a bubble driven by the expansion of margin lending and retail investor speculation, rather than a direct reflection of deteriorating real economic fundamentals (Walter and Howie). Scholarly analysis of the government's intervention pattern indicates that direct state capital purchases and restrictions on short selling suppressed price discovery in the short term, with measurable effects on foreign institutional confidence. Some researchers have also linked the crisis to structural features of China's financial system, including the expansion of shadow banking finance and off-exchange leveraged channels (Borst; Shih). |
Key Milestones
- Shanghai Composite Reaches Peak and Begins Sharp Decline
The Shanghai Composite Index closed at 5,166 points on 12 June 2015, representing a gain of more than 150% from its mid-2014 low. The market then entered a sustained decline, with widespread daily limit-down moves across A-share stocks in the weeks that followed.
- PBOC Cuts Rates; CSRC Eases Margin Lending Rules
The People's Bank of China announced a 25-basis-point interest rate cut and a reduction in the reserve requirement ratio. The China Securities Regulatory Commission simultaneously eased restrictions on margin lending operations.
- Over 1,000 Listed Companies Halt Trading; State Funds Enter Market
More than 1,300 A-share listed companies applied to halt trading, accounting for approximately half of all companies listed on the Shanghai and Shenzhen exchanges. China Securities Finance Corporation — the so-called "national team" — began purchasing shares on a large scale through brokerages.
- RMB Exchange Rate Reform; Currency Depreciates Nearly 2% in One Day
The People's Bank of China announced reforms to the renminbi's central parity rate formation mechanism. The RMB mid-rate against the US dollar fell by nearly 2% on the day. The move triggered volatility in global financial markets as international investors reassessed their exposure to Chinese assets.
- Shanghai Composite Reaches Trough, Down Over 43% from Peak
The Shanghai Composite Index closed at 2,850 points on 26 August 2015, down more than 43% from its 12 June peak. Markets subsequently stabilised under continued government intervention.
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